Coronavirus has wiped more than £1bn from the value of shops and offices owned by British Land, one of the UK’s largest landlords, over the past year.
The value of the FTSE 100 company’s property holdings fell more than 10 per cent to £9.1bn over the 12 months to the end of March as the pandemic forced businesses to close and dimmed the longer term outlook for many high streets and shopping centres.
However, the impact of Covid-19 did not fall evenly across the company’s portfolio, which includes Broadgate, a large office complex in the City of London, a significant development site at Canada Water in east London and an array of shopping centres and retail parks around the country.
Offices lost 3.8 per cent of their value in the period, the company said on Wednesday, but shopping centres lost 36 per cent of their value — close to 10 times that.
Simon Carter, British Land’s chief executive, said he expected rents across the London office market to fall a further 5 per cent but is optimistic that those in his buildings will hold steady because “most of our stock is very modern and has been refurbed or redeveloped in the last few years.”
Rent collection from offices, which make up the bulk of the company’s assets, was 99 per cent, ahead of leading rivals’ collection rates.
But with many shops unable or unwilling to pay rent for much of the year, British Land collected only 71 per cent of the £305m it was owed by retail tenants for the period. Some of the £88m shortfall will be recovered, but at least £30m has been forgiven or written off after tenants including Arcadia and Debenhams collapsed.
As a result, British Land’s underlying profit fell 34 per cent year on year to £201m.
Despite years of tumbling valuations, accelerated by the pandemic, investors in shopping centres still face a gloomy outlook, according to Carter. Rents might fall another 10-15 per cent from today’s levels, he warned.
“We’ll roll our sleeves up and do some heavy asset management. Once we’ve got stable cash flows we can make a decision on the outlook,” he said.
British Land’s wait-and-see approach differs from largest rival Land Securities, which announced last week that it was willing to bet on shopping centres.
Rather than target cheap malls, British Land has said it will narrow its focus to a handful of campuses, which include Broadgate and Canada Water, and invest in urban logistics and retail parks — two sectors which have benefited from the boom in ecommerce during the pandemic.
But the landlord will face stiff competition from more established developers, particularly in the logistics space, warned Colm Lauder, an analyst at Goodbody.
“Urban logistics is very competitive. I fear they run the risk of overpaying for a segment of the market where they’re never going to have scale . . . competing with [logistics specialist] Segro and others doesn’t make sense,” he said.
Shares in British Land were down 1.7 per cent in late-morning trading.